US Airways CEO wraps busy decade

Doug Parker, CEO of Tempe-based US Airways, has spent the past 10 years attempting to stay a step ahead of the industry's next daunting challenge.

From Sept. 11 to the economic downturn, through bankruptcies, mergers, fees and cutbacks, the volatile industry has demonstrated both its fragility and resilience.

On a recent afternoon, Parker sat down with The Arizona Republic to discuss the decade he's spent as chief executive officer for both US Airways and its 2005 merger partner, America West Airlines.

The tenure of Parker, who took charge of America West only 10 days before the terrorist attacks, has been marked by merger talks - only one of which was successful - fuel-price spikes and complicated labor negotiations.

He's dealt with financial crises and customer-service snafus - and watched in wonder as US Airways pilot Chesley Sullenberger saved a planeload of passengers by landing a jet safely on the Hudson River after a bird strike.

Parker continues to wrestle with some of the same issues that dominated the past decade, although it's widely believed that the airline today is in a better place financially than it was two years ago. Infused with $2.6 billion in cash, $2.2 billion of which is unrestricted, US Airways so far has been able to ride out the most recent spike in fuel prices. It's done so by adjusting capacity early and often to more closely match the ebb and flow of customer demand. It's also relied on ancillary revenue sources such as baggage fees and fewer competitors in the industry.

Still, there's always more to do, Parker said.

"If indeed where we are right now is the new normal, if oil is going to be $90 to $100 a barrel, and if the economy's going to keep bouncing along the bottom like it seems to be for the foreseeable future . . . I think you will see airlines with less capacity than they have today," Parker said.

First undertaking

On Sept. 1, 2001, Parker, then 39, was named chairman, president and chief executive officer of America West. A veteran of American and Northwest airlines, Parker had served as both the chief financial officer and chief operating officer for America West.

He had experience in a number of areas, but he had never had any dealings in government relations. At the time, he thought that detail was insignificant because America West was small and didn't often have to appeal to Congress.

Ten days later, all that would change.

Parker was getting ready for work the morning of Sept. 11 when he got a call from his sister about the attacks.

"I turned on the TV . . . and the first one had flown into the tower," Parker said. "I found out like most people. The difference was that my phone rang within minutes (of that), and it was our operations-control people telling me that the FAA had grounded the entire U.S. fleet."

The terrorist attacks shook the foundation of the industry, causing seismic shifts in the way consumers perceived air travel. For two days, the Federal Aviation Administration kept all flights grounded. Parker recalls looking out of his Tempe office, which planes fly past frequently, and seeing none.

"It was so weird, eerie," Parker said, glancing out the window of a meeting room at US Airways headquarters.

In the months after the attack, Parker said, the sky was full of nearly empty airplanes.

America West, which had intended to announce a large aircraft order around that time, could no longer qualify for about $400 million in financing because it had very little revenue coming in. The plane order was canceled.

But a lack of revenue had an even more profound impact on America West.

"We definitely did not have enough cash on hand to make it through the winter under those terms," Parker said.

Parker spent much of the next three months in Washington, D.C., lobbying legislators to pass the Air Transportation Safety and System Stabilization Act, which, among other things, provided loan guarantees to the airlines. On Dec. 28, 2001, America West received $380 million in federal loan guarantees.

Bill Franke, Parker's predecessor at America West, calls the timing of his departure from the airline "one of life's greatest ironies."

"I was in Australia, and I couldn't provide any help to him," Franke said. "It was a real trial by fire, but he did a terrific job."

In the years after the Sept. 11 attacks, the industry reinvented itself. Several airlines filed for bankruptcy, including US Airways, which filed twice.

Merger mania

In September 2005, America West finalized its purchase of US Airways, which was in bankruptcy.

"US Airways was on the verge of liquidation," Parker said, adding that if America West didn't pick up the pieces, one of its competitors would. "And that would have made our problem even larger."

The purchase provided America West access to hubs on the East Coast - Charlotte and Philadelphia - as well as Washington, D.C., which US Airways refers to as a focus city.

It more than doubled the size of the airline and gave Phoenix a hometown airline that had international exposure, something America West never had.

Despite its battered financial state, America West changed its name to US Airways because it had more name recognition among travelers, Parker said.

The merger served as the starting point for the long-standing seniority battle among former US Airways and America West pilots. After nearly six years, the pilots of former America West and old US Airways do not have a combined contract. Neither do its flight attendants.

"In retrospect, I don't think anyone could have anticipated what happened," Parker said. "We had one old legacy airline . . . that because of its financial difficulties had shrunk more than any other legacy airline. The pilots that were left were very high seniority. Then we had a startup, essentially post-deregulation young airline. No one had ever tried to put two airlines like that together and integrate seniority."

In July, US Airways sued its pilots union, the US Airline Pilots Association, for an alleged work action that the company says is tied to the seniority dispute. A U.S. District Court judge in Charlotte, N.C., has not yet ruled on the allegations.

Also pending in the courts: a lawsuit the union filed against the company in New York alleging that management has slowed contract negotiations intentionally to maintain low costs. US Airways is also waiting for the U.S. District Court in Phoenix to rule in a case intended to provide the company direction on whether it can implement a seniority list without legal repercussions.

Parker was dubious when asked whether he thought the pilots would have a joint contract in the next year.

"The reason being, we will not have the seniority dispute resolved by then," he said.

Although Parker's predecessor, Franke, said he was not aware of all the circumstances surrounding the merger, he said he was not sure he would have completed it.

"I was particularly concerned about the labor issues, which of course still remain in question," Franke said. "I think the jury is out on how that is going to work."

Bob Mann, an airline consultant for R.W. Mann and Co. in Port Washington, N.Y., said he thought it was just a matter of time before the pilots groups integrate.

"The problem with the lack of finalization is that it does compromise the legacy, so to speak," Mann said.

Since the 2005 merger, US Airways has unsuccessfully attempted two others, one with then-bankrupt Delta Air Lines in 2006 and one with United Airlines in 2010.

Although neither attempt was successful, Parker credits the attempts as the impetus for Delta's merger with Northwest and United's merger with Continental.

Parker said labor issues did not preclude US Airways from nearly reaching a deal with United.

"We got to the point with United where we were within days of announcing an agreement about a year ago," he said. "It (the pilot seniority dispute) was a complication. We spent a good deal with United convincing them that was the case. It's a complication, but definitely not a barrier."

Fiscal health

In 2008 and 2009, the airlines were criticized for adding new fees, such as one for checked baggage. Although many passengers dislike the fees, US Airways maintains that the ancillary revenue helped it return to profitability in 2010.

Parker says the airline has no intention of repealing the fees - but there are no plans to expand them, either.

"It's been difficult for the customers who we trained that you buy a ticket, and here are all the things that come with it," Parker said. "It wasn't the best business model. I think we've settled on a model that works, which is, for the most part, you pay for your own ticket, and if you want to check a bag, that's extra."

Yet the airline's costs have increased dramatically this year.

In March, the monthly average price of U.S. Gulf Coast jet fuel was about $3.13 per gallon, compared with $2.11 per gallon in March 2010.

In 2008, the price of fuel followed a similar trajectory. Expensive fuel hedges and plummeting demand led to a $2.21 billion loss for US Airways that year. This year, the airline has fared much better: In the first quarter, it reported a $114 million loss; during the second quarter, it reported a $92 million profit.

The profit resulted from boosting fares and cutting flights.

US Airways has also streamlined some operations in recent years by automating check-ins and offering digital boarding passes.

"While those things are expensive to put in, they actually do help to reduce our costs," Parker said.

The company made $16 million in upgrades to its baggage-handling technology in the past several years, which played a role in US Airways' No. 1 ranking among the five hub-and-spoke carriers for fewest bags mishandled in 2010, according to the U.S. government.

In 2010, it also ranked No. 2 and No. 3 in other key measurements: on-time arrivals and fewest consumer complaints.

However, in May, Consumer Reports ranked US Airways last for customer satisfaction based on a survey it distributed. Consumers cited uncomfortable seats and excessive fees.

Herb Baum, former CEO of Dial Corp., who sits on US Airways' board of directors, said he believed many customer gripes hearken to US Airways' bankruptcy era, before the 2005 merger.

"Why do passengers get on a plane in the first place? They want it to leave on time and arrive early," Baum said. "In the last five years, they (US Airways) have really gone from an airline that was really struggling, from the old US Air, to one that doesn't get credit for all that it has done."

This year, the airlines' operations have suffered. In June, the company placed last among the top five hub-and-spoke carriers for on-time arrivals, which Parker attributes to slowdowns tied to work actions of some of its pilots in the East. The US Airline Pilots Association denies the company's allegations.

Looking forward

Looking to the next decade, Parker said US Airways would remain a standalone airline or be half of the next big merger.

Whichever it is, he'll be proud, he said.

"After 9/11, I remember reading some Fortune 500 article that made me sick to my stomach," he said. "Just as a statement of fact almost, it said America West and US Airways will certainly not survive. I was thinking to myself: 'What the hell do you know?' The fact that we are here 10 years later having merged those two airlines and numerous others have fallen by the wayside . . . I feel really good about that."

10 pressure-packed years

Sept. 11 - The Federal Aviation Administration grounds all planes on Sept. 11 after the terrorist attacks. When flights resume, passenger numbers shrink dramatically for U.S. carriers because people are afraid of air travel.

Dec. 28 - America West approved for $380 million in federal loan guarantees under the Air Transportation Safety and Stabilization Act.

2004

November - America West considers purchasing now-defunct American Trans Air.

2005

May 19 - America West Holdings and US Airways Group, Inc. announce plans to merge. Parker will head the combined airline.

Sept. 27 - Merger of the airlines is completed.

2006

April - Airline completes $1.25 billion debt refinancing.

November - US Airways makes an unsolicited bid for Delta Air Lines, which was bankrupt at the time. Delta later rejects.

2007

Jan. 31 - Parker pulled over for driving 20 miles over the posted speed limit in Scottsdale. He is charged with driving while intoxicated.

May - Arbitrator George Nicolau issues a seniority list for the former America West and old US Airways pilots, both represented by different chapters of the Air Line Pilots Association.

September - US Airways obtains a single operating certificate from the Federal Aviation Administration.

December - The Great Recession begins.

2008

April - After a simple majority vote, the US Airline Pilots Association replaces ALPA as the collective bargaining agent for the two pilots groups. Old US Airways pilots represent a majority in the union. USAPA wants to scrap the Nicolau Award, in favor of a straight date-of-hire seniority list.

January - December - With fuel prices on the rise, US Airways' fuel costs, which include fuel hedges, exceed 2007 fuel costs by $1.4 billion.

2009

Jan. 15 - "Sully" Sullenburger successfully lands a US Airways aircraft. headed from New York to Charlotte. on the Hudson River after a bird strike.

May - a group of old America West pilots who filed a lawsuit against USAPA, alleging a breach of contract, win their case in U.S. District Court in Phoenix.

2010

April - US Airways and United Air Lines are reportedly in merger talks, which end up falling through. United merges with Continental later that year.

June - The 9th Circuit Court of Appeals overturns the District Court's ruling against USAPA because it says the West Pilots' case in not yet "ripe."

July - US Airways files a complaint for declaratory relief, asking the court to provide it the authority to either implement the Nicolau Award or another seniority list without consequence.

2011

March - The monthly average price of U.S. Golf Coast jet fuel exceeds more than $3.00 per gallon. Steep increase in jet fuel prices parallel sharp 2009 increases. Contrary to 2009, demand for air travel remains high in 2011.

July - US Airways reports $3 billion in cash, $2.5 billion of which is unrestricted.

July 29 - US Airways files a lawsuit against its pilots union for an alleged work action. Although a hearing has been held, the federal court in North Carolina has not yet ruled.